Finding the ROI in RFID

Newmans Valve doesn’t make expensive athletic shoes or designer handbags, but the company was getting hurt by knock-offs just the same.

Counterfeiters were copying specialty valves that the $70 million Stafford, Texas, company makes for oil refineries, chemical factories and desalinization plants. Ranging in size from tiny to big enough for Shaquille O’Neal to walk through, the valves can run up to $250,000 each.

Three years ago, Newmans discovered that someone was selling knockoffs when a Chilean refinery that wasn’t even a customer got in touch to complain about getting faulty valves.

To fight back, Newmans used smart-tag technology better known for tracking lost pets, letting motorists zip through toll booths and helping Wal-Mart Stores, Inc., account for every pallet of shampoo and paper towels it sells. In 2009, the company started riveting plastic-encased radio frequency identification, or RFID, tags to each valve it made. A serial number inside each tag verifies its authenticity and feeds into a database that stores its components, metallic composition, origin and results of industry tests.

For less than $500,000 Newmans spent on the RFID tags, it has saved more than $2 million in costs through improved labor efficiency, customer satisfaction and additional sales generated by increased brand recognition. Fighting counterfeiters was just the start, says Lonel Nechiti, Newmans’ chief strategic officer. “The ROI in RFID also has to do with traceability of products, warehouse management, documentation and the types of things that are kept in our database,” he says.

Tracking Everything From Bombers to Briefs
Often touted as the new barcodes, RFID tags have been championed by major corporations such as Wal-Mart and Best Buy Co., Inc., to track goods through their supply chains. In summer 2010, Wal-Mart announced plans to expand its RFID tagging to individual pairs of jeans and packages of underwear.

Now a growing number of mid-sized companies in manufacturing, healthcare and other industries are following, using RFID to save labor, time and money. Some report recouping their initial investment within a year.

A recent survey by technology researcher, ABI Research found that nearly half of respondents using, deploying or evaluating the technology expected their RFID budgets to increase in 2010. “There are some warehouses out there that are still using paper and pencil. They don’t even have a barcode system in place,” says Michael Liard, RFID practice director at ABI Research. “If they’re going to automate, they can leapfrog over barcoding and go right to RFID.”

RFID’s roots go back to World War II radar systems used to track enemy aircraft. Today, it’s used in everything from ID badges to water meters. The technology uses small computer chips with tiny antennas that are attached to items and “read” instantaneously via radio waves. The resulting data is stored electronically. Active RFID tags are more expensive because they contain batteries used for transmitting data, such as location information. Passive tags draw power from the reader instead of a battery, making them small and cheap enough to be included in a label.

RFID technology can be pricier than barcodes, but the benefits can outweigh the costs. RFID tags can be read without a direct line of sight, unlike barcodes, which must be scanned. Because RFID tags can be encased in plastic or other material, they work in harsh environments, such as oil refineries. RFID readers can scan hundreds of tags per second, making it easier for companies to receive shipments of paper towels and detergent into inventory.

Business Uses for RFID
In addition to tracking inventory, mid-sized companies are using RFID to prevent theft and loss, offer new services and ultimately save money. Here are some of the most popular business uses:

Tracking Goods and Equipment - Companies are using RFID to track everything from computers and IT equipment to confidential files to returnable beer kegs or oxygen canisters. Apparel retailers use it on handbags and designer duds, and construction firms for tracking drills, jackhammers and saws. Tracking assets is an easy first application for many companies because they can slap RFID tags on items that are often lost or stolen or just hard to find. “Hospitals now track infusion pumps, wheelchairs and even thermometers,” says Paul Chang, IBM’s global lead for emerging technologies strategy. “If they can track it in real-time, they’re not wasting time looking for it.”

Secure Access Control - RFID can be used to control access to office buildings, parking garages, or other sensitive areas. Instead of juggling a key ring or swiping a magnetic card, employees hold up an RFID-equipped badge to unlock a door or gate. Hotels and resorts, health clubs and conferences are using RFID-based key cards or access passes. Populous, a $126-million San Francisco sporting events planner, tested an RFID-based meeting credential at a June 2010 conference. The badge, designed by Document Security Systems, tied participants’ credentials with biometric data for security, and also gathered data about attendance and traffic flow. “It worked perfectly,” says Jeanette Johnson, events manager for the company, which manages parties for the Super Bowl and baseball’s All-Star Game. “We’re going to use it for some sporting events.”

Payment Systems – As more consumers use RFID-based payment systems to buy everything from subway passes to drug store items, resorts are taking notice. The Great Wolf Lodge, a $264 million chain of 12 indoor water parks, now fits guests at several locations with RFID wrist bands that serve as tickets and room keys. The cards can also be loaded with money to pay for food or arcade games. This ski season, 18 North American resorts are using lift ticket systems from Axess North America that automatically open lift gates when skiers with RFID-equipped tickets pass. Vermont’s Jay Peak Resort will use RFID passes as lift tickets and lodge keys for guests. The resort may soon add a stored-value component to the pass so guests can use it to buy hot chocolate without having to carry money on the slopes. “We’re trying to make the entire guest experience a little easier,” says Craig Russell, Jay Peak’s information systems manager.

Inventory Tracking – Mid-sized companies have used RFID to cut labor, time and money from tracking inventory and managing warehouses. Golden State Medical Supply, a contract pharmaceutical maker and distributor in Camarillo, California, invested in RFID in 2009 to comply with new state requirements that drugs carry an electronic pedigree to verify they aren’t counterfeit. Golden State also is using them to better manage its warehouse and track inventory – data that it now shares with customers. “The what, where, when and why about a product is not just important to them, but to their customers,” says Chang, of IBM, which works with Golden State on the RFID project. “It ensures complete visibility of a particular lot,” which can be helpful in the event of recalls or returns, he says.

Mid-sized companies that want to try RFID should start small. Begin with a project that promises a good return, and start trials with knowledgeable vendors, according to Liard, of ABI Research.

After its success using RFID to track a select group of the valves it produces, Newmans Valve is beginning to tag its entire product line. “The hardest part is the culture change in the organization,” Nechiti says. “It’s so easy to say, ‘No, we can’t afford it. It’s not something that will add value.’ But if people just give it a chance and first do a pilot they can see how easy it can produce results.”